The government is determined to push reforms in the power sector at full speed. On the agenda is clearing as many proposals as possible to set up thermal power plants and nuclear power generation capability. That is good news.

But recent studies appear to suggest that solar power may still be the best way out. In fact, as ‘The Economist’ points out in its latest issue, California-based Brightsource Energy Inc. recently signed the world’s two largest deals to build new solar power capacity. The deals involve 14 solar power plants that will collectively supply 2,600MW of power, enough to light 1.8 million homes.

Instead of using the conventional photovoltaic route, this company specializes in “concentrating solar-thermal technology”, in which mirrors concentrate sunlight to produce heat. This heat is then used to create steam, which in turn drives turbines to generate electricity.

The chart shows some of the highest capital costs for all types of power-generating facilities, which could be between 30% and 40% higher than the costs for plants that have been cleared on the basis of international competitive bidding.

The only factor that appears to go against solar power is the capital cost involved per MW of power generated (in sharp contrast to per MW of installed capacity). But on a per MW basis, solar power requires less capital expenditure than hydropower and wind power.

Interestingly, the time taken to set up a solar plant compares well with the time taken to set up either thermal or wind power plants. Hydropower plants, in contrast, can take several years to set up.

But what makes solar power most attractive is the cost it takes to generate each unit (kWh) of electricity. Even if one accepts the high capital costs (inclusive of interest costs and labour), the tariff would be less than Rs2.50 per unit. You also have the benefit of a non-polluting facility.

And since solar towers use steam, which coal-fired thermal plants also use, it would make sense for Indian engineers to work out ways to convert some of India’s coal-fired turbines into solar (steam) power turbines. That way, existing assets could be used to switch over to a new technology that is both consumer and environment-friendly.

*********

Transfer of Emri ownership draws flak

The transfer of ownership of Emergency Management and Research Institute (Emri)—the emergency response service promoted by B. Ramalinga Raju, former chairman of Satyam Computer Services Ltd—to the GVK group has set tongues wagging.

They talk of how the government has ensured that an Andhra Pradesh corporate group continues to hold control over this service, which has acquired quite a bit of real estate and garners significant public funds annually from several states.

They also talk about how this transfer of ownership was facilitated by Infrastructure Leasing and Financial Services Ltd (IL&FS), which has spearheaded the Emri initiative across the country.

In fact, in another development, IL&FS increased its stake in the infrastructure products of Maytas Infrastructure Ltd by increasing its revenue share in these projects, instead of increasing its 14.5% equity holding in the company’s share capital (which, incidentally, is quite contrary to the claim of a 37% holding that was made before the Company Law Board on 26 February).

By adopting this strategy, IL&FS further strengthens its position and returns from the highly lucrative infrastructure projects in Andhra Pradesh, without making a public offer to the general shareholding public, which it would otherwise have to do if its equity holding exceeds 20%.

*********

China’s chills are infectious

On the global front, China continues to wax and wane.

At first, it backed a proposal that the world should adopt an international currency other than the US dollar, and indicating that it was in favour of a mechanism such as the International Monetary Fund’s special drawing rights (SDR). Then it did a somersault and purchased even more treasury bills. Evidently, the fear of the dollar collapsing, thus devaluing what is left of its own $2 trillion (around Rs95 trillion) war chest, left China with no alternative but to continue backing the US.

Meanwhile, as news reports point out, China has not yet been able to create a domestic market for its goods and services large enough to compensate it for the loss of export business. According to one person, “in China’s Guandong province, one of the world’s biggest manufacturing hubs, over 62,000 companies shut down in the last six months of 2008—that’s roughly 340 a day. With so many suppliers in dire straits, businesses have lost confidence in their vendors. According to a January HBR (Harvard Business Review) survey, 21% of 1,024 executives and managers said that their trust in suppliers had been shaken over the past 12 months.”

China’s dilemma is understandable. To increase domestic consumption, it must increase the purchasing power of its teeming millions. But with a two-passport system currently in place—one for the rural sector and one for the urban—it has prevented the rural sector from tasting any of the pleasures and privileges of the urban sector. If the rural sector were to have purchasing power, it would begin clamouring for more, and threaten the very foundations of political hierarchy in that country.

Fortunately, as was the case in India, the moves by the US and many other European Union governments against tax havens and banking secrecy have triggered a flow of foreign exchange back into China. That has provided its economy some respite. The pangs will get more severe in the coming months.

Graphics by Sandeep Bhatnagar / Mint

R.N. Bhaskar runs a company with significant interests in distance learning and examination certification and writes on corporate and business policy issues. Comments on this column are welcome at capitalist@livemint.com